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Regulation of a Complementary Imputed Good in a Competitive Environment

  • Leopold Soegner

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    (Department of Economics, Vienna University of Economics & B.A.)

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    This article investigates the problem of a regulated imputed good which is used in the production process of the final goods. The relationship between the firm producing the essential input factor and the regulating authority is described by a standard principal-agent setup. By assuming a fixed functional relationship in the production process between the imputed good and the final market goods, there exists some kind of separation between regulation and competition on the final good market. Thus, the degree of competitiveness on the final good market has no effect on optimal contracts. Moreover, in this model vertical integration weakly dominates vertical disintegration in welfare for subadditive cost functions.

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    Paper provided by Vienna University of Economics and Business, Department of Economics in its series Department of Economics Working Papers with number wuwp056.

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    Date of creation: Mar 1998
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    Handle: RePEc:wiw:wiwwuw:wuwp056
    Note: Zipped Postscript Document
    Contact details of provider: Postal: Welthandelsplatz 1, 1020 Vienna, Austria
    Web page: http://www.wu.ac.at/economics/en

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    1. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
    2. Laffont, Jean-Jacques, 1992. "The New Economics of Regulation Ten Years After," IDEI Working Papers 22, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Richard J. Gilbert & Michael H. Riordan, 1995. "Regulating Complementary Products: A Comparative Institutional Analysis," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 243-256, Summer.
    5. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    6. McAfee, R. Preston & McMillan, John., 1990. "Organizational Diseconomies of Scale," Working Papers 728, California Institute of Technology, Division of the Humanities and Social Sciences.
    7. David E.M. Sappington & David S. Sibley, 1992. "Strategic Nonlinear Pricing under Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 1-19, Spring.
    8. R. Preston McAfee & John McMillan, 1987. "Competition for Agency Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 296-307, Summer.
    9. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Owen R. Phillips & Charles F. Mason, 1996. "Market Regulation and Multimarket Rivalry," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 596-617, Autumn.
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